There are two broad schools of thought when it comes to seeking out responsible investments on the ASX. By 'responsible', we mean shares that place a high value on their environmental, social and governance (ESG) policies. Also known as the 'triple bottom line'.
The first is that you should invest in shares which you believe will deliver you the absolute highest returns, regardless of ESG considerations. Then, if you so choose, you can use some of those gains to support your favoured environmental or social causes.
The second is to seek out shares that are actively pursuing ESG policies. Ideally then, your investment can not only return capital gains but your money can also have a positive impact on the world around you. Hence, you'll also hear this referred to as 'impact investing'.
We'll leave it to you to decide how to balance the two choices. But according to this morning's press release from the Responsible Investment Association Australasia (RIAA), ESG investment is booming.
Hitting new heights
In 2018, professionally managed responsible investments in Australia totalled $980 billion. Today that figure is $1.15 trillion, representing growth of 17%. RIAA notes that 37% of all professionally managed investments are now managed using one or more responsible investment approaches.
And it looks like this trend has a lot more growth ahead of it.
Michelle Lacey is the Head of Core Client Group, Australia, AXA Investment Managers. According to Lace:
RIAA's research shows Australian investors would like to increase their allocation towards impact investments more than fivefold over the next five years, so we believe this should be a particular area of attention for financial advisers.
This rapid growth is also seeing an increasing range of ESG investment options opening up, says Yo Takatsuki, Head of ESG Research and Active Ownership at AXA IM.
Takatsuki adds:
Funds that have been established to target specific social and environmental objectives, often called impact funds, are becoming far more ambitious in their investment goals. They are attracting sophisticated investors who expect very clear and detailed reporting, both quantitative and qualitative.
With that in mind, the Association urges financial planners and managers to be familiar with ESG investments, pointing to their free Financial Adviser Guide to Responsible Investment publication.
And ESG investing doesn't mean you're sacrificing share price gains for a healthy conscience.
Quite the contrary, according to Simon O'Connor, Chief Executive Officer of RIAA. He says:
The rapid growth in responsible investment has been driven by client demand and strong investment outcomes, with clear evidence that responsible investments deliver stronger risk-adjusted returns.
There you have it.
Maybe you can have your cake and eat it too, investing responsibly on the ASX and reaping big share price gains.
